As discussed yesterday, the dramatic reversal in investor sentiment trends (headlined by the benchmark S&P 500) would quickly stall in the lead up to significant event risk – the kind that can fuel or kill a new trend. For the safe haven US dollar, the loss of momentum to the nascent fear drive has curbed a great opportunity to revive a bull trend that fell apart at the beginning of the year. That said, the move hasn’t yet failed, rather it has been put on ice until the potentially rough fundamental weather passes. Measuring performance, the greenback lost ground against all of its counterparts (again with the exception of the yen), but the correction is so far only a fraction of Tuesday’s rally. By definition, this is a pullback until we fully reverse preceding move. And, though sentiment trends are more or less moored, this past session found a modest risk tide to work with. A WSJ article reported that Fed officials were discussing a third option for any future stimulus discussions: sterilized QE. In contrast to the standard quantitative easing and Operation Twist policy used to this point, this approach attempts to control the inflation side effects. This is certainly good speculative fodders for stimulus addicts, but it doesn’t mean we are any closer to a QE3.

Moving forward, we will be met with tangible event risk. For the upcoming session, the outcome of the PSI bond swap (more on that below) will offer guidance on risk, while the range of central bank rate decisions will tip the other side of the scales with a global stimulus view. This round certainly taps into two of the market’s favorite themes, but it is unlikely that either offers a conclusive outcome on either point. If there isn’t a clear catalyst for either theme, a bout of volatility will likely fail once again for trend as we then move on to speculating Friday’s NFPs.

Euro: What has been Priced In for the Greek PSI Bond Swap?

There are two headline-worthy events for the euro traders to keep track of through the coming session; but without doubt, the progress on the Greek bailout effort carries the greatest weight lasting fundamental impact. At last check, the financial media (Bloomberg) had investors with 58 percent of Greece’s public debt onboard for restructuring scheme. Somewhat fancifully, Greek officials are aiming for 90 percent participation and their minimum is 75 percent. Below that threshold down to two-thirds approval, they would likely activate their CACs (collective action clauses) to force participation from the holdouts. The scenarios are pretty straightforward (which ultimately tames the impact the event will have) but what really matters is how the actual outcome compares to the consensus forecast. A pass that involves a default appraisal from the rating agencies (likely with use of the CAC) is expected, so we should assume this theme is as priced in as it can be for medium-term impact. That said, be very weary of building skepticism. In the meantime, no policy change is expected of the ECB, but Draghi’s comments will draw interest.

New Zealand Dollar Dives after RBNZ Voices Worry Over Currency

In the second central bank announcement his week, the RBNZ would follow the RBA’s lead and keep its benchmark lending rate untouched at 2.50 percent. However, unlike his Australian counterpart, Reserve Bank of New Zealand Governor Alan Bollard delivered meaningful commentary for traders to key into. Most remarkable to those in the FX world was the suggestion that the high level of the currency was undermining growth and an expensive kiwi would reduce the need for hikes going forward. This is clear ‘jawboning’ from Bollard, though it does suggest his hands are more or less tied from fighting exchange rates through monetary policy. Furthermore, the policy authority sees growth of 1.8 percent this year and 3.1 percent (upgraded) next year. The fundamental advantage the kiwi had over the Aussie recently has been reduced.

Australian Dollar Moves through Its Third Major Catalyst as Risk Steadies

We have passed the Aussie dollar’s third and final major fundamental event this week. Like the RBA rate decision and 4Q GDP figures before it, the February employment numbers were worth short-term swell in volatility – but not the impetus needed to drive the currency on a standalone trend. According to the statistics group, the country lost 15,400 jobs last month in a notable miss against a projected 5,000-addition and the 46,200-pposition increase the previous reading. Yet, the pain in this miss is reduced given the knowledge that it was all part-time position losses and the uptick in the jobless rate (to 5.2 percent) is still well off the 2009 peak. On net, the Aussie fundamentals have moderated this week.

British Pound: Can the Bank of England Stir the Currency?

The Bank of England rate decision is clearly being subordinated to the ECB policy outcome for expected market impact – and for good reason. It was just this past month that the Monetary Policy Committee (MPC) increased its Asset Purchase Target by £50 billion. It takes time for these purchases to be made; and according to the previous boost, February’s should take two to three months. So, what should we expect this time around? Typically, the central bank does not release a statement when there is no change to rates. Therefore, this policy decision could very well pass without any meaningful guidance and therefore encouragement for the sterling.

Canadian Dollar Could Take BoC Reaction Guidance from RBNZ

Of the three central bank decisions Thursday, the Bank of Canada’s announcement carries the lowest level of expected influence. Activity levels for the loonie following previous policy announcements have reflected upon an apathetic market. Going by what we have seen in previous iterations of this event, Governor Carney and crew are likely to keep the benchmark rate unchanged at 1.00 percent. That said, he has maintained an undeniably dovish tone throughout. Yet, the market hasn’t been provoked. Perhaps the RBNZ reaction suggests more sensitivity.

If the dollar was lower on the day, gold is most likely to be higher. This inverse correlation between preferred safe haven currency and preferred alternative store of wealth was intact through the previous trading session. And, direction wasn’t the only commonality. Where the greenback was only giving back a portion of its gains, the metal would only recover a fraction of its Tuesday losses. Moving forward, we are heading back into gold bugs’ territory. The outcome of the Greek bond swap taps into the market’s concerns that a bigger financial crisis is simmering under the façade of European officials’ efforts to delay the inevitable. Beyond that, stimulus seems to be a favorite topic in speculative circles.

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